A cynical commentary about developments in the South African financial markets and the incomprehensible activities and pronouncements of bureaucrats and politicians.

Friday, 3 October 2014

THE RAT CATCHER’S RETURN

This bear is growing
up rapidly. Just a couple of weeks old and already he is inflicting some
terrible damage and has clawed 7% out of the JSE’s All Share. Furthermore he
has brothers who are ripping apart other markets including bonds and
commodities both here and overseas. The reasons being offered for this change
in attitude by investors are as numerous as they are inventive. A particularly
interesting one is the sudden fall from grace of a man who managed the world’s
largest bond fund in the US.
Somewhat inevitably his market timing luck eventually ran out and the departure
of both him and very many investors from that fund is said to be weakening the bond markets globally. Less easy to explain is why the dollar
price of gold is weakening so swiftly.

In its
current mood the market treats just about every published data point as
bearish, no matter that a few weeks ago that same number might have been hailed
as wonderful news. Against this trend however was the reaction to the news that
almost 61 000 new vehicles were sold last month. Intriguingly rental companies
absorbed almost a quarter of them. If they are seeing customer growth why can’t
our national airline make money flying people to places to rent those cars?

Probably
a number of those new vehicles were minibus taxis being delivered to the Western Cape. In that
province fines for traffic related offences, such as unroadworthy vehicles have
been raised very substantially. Naturally there has been an outcry about this,
with claims that the fines will “cripple” the industry. The method that taxi
drivers can use to avoid this painful outcome is obvious. However the news that
the province has yet to collect R3bn in unpaid fines suggests that most tickets
are utterly ignored anyway.

The
slew of data this week included the government’s cash flow numbers which
revealed that there is still absolutely no attempt being made to trim
expenditure and that out of every R100 the state spends, R17 of that has to be
borrowed. While on a personal scale that seems rather uncomfortable, economists
have a variety of techniques for disguising this fiscal deficit so that it
doesn’t appear all that bad. Great store is put on the fact that the government
(unlike the rest of us) has no difficulty repaying loans because if needs be it
can simply print the interest and capital money – provided of course they are
in rands. Foreign loans are far trickier

Another
data point which was definitely worrisome concerned the so-called trade
balance. The good news is that the nation’s appetite for imported goods has
stabilised a bit, but the income received for exports has contracted. In
aggregate over the past 12 months we received about R187bn less than the
imports cost and this figure too is growing steadily. It would be so refreshing
if for once politicians joined the dots and noted that their interventions are
not working and that it was time to try something different. Like not telling
everyone what to do and how to do it.

There are many aspects to the news that Johannesburg wants to introduce owls into areas of their World Class
African City
to try and control the exploding rat infestation. The first is that the rats must
be particularly nasty and unpalatable for if they were not, the owls would long
ago have moved in all on their own. Secondly it is disgraceful that the
authorities are delinquent in executing this core responsibility of keeping the
city clean and free of rubbish. Municipal service is undeniably humdrum and
mundane but it is essential which is why the rest of us agree to pay rates and
employ someone to do those jobs.

I am so glad I ignored medical advice and
watched the final 20 minutes of the Wallaby game last weekend. I’m not sure if
there will be an equivalent opportunity to switch on the All Black match
tomorrow.